Consumer spending had been expected to post
solid gains this year, helped by stronger employment growth and a 2
percentage-point cut in Social Security payroll taxes. But Americans are
paying more for gas, prompting economists to scale back their growth
forecasts.

The national average at the pump on Friday was $3.90 a
gallon— 31 cents higher than a month ago and more than $1 than what
consumers paid a year ago.

Less growth in consumer spending was a
big reason the overall economy slowed sharply in the first three months
of the year. The 1.8 percent growth rate was weaker than the 3.1 percent
growth in the previous quarter. Consumer spending is important because
it accounts for roughly 70 percent of economic activity.

"The
increase in prices is absorbing pretty much all of the windfall from the
payroll tax cut," said Paul Dales, an economist with Capital Economics.
"If gasoline prices were to stop rising, real consumption could bounce
back in the second quarter.

"But even then," Dales said, "jobs growth and wage growth
are not strong enough to result in a significant and sustained
acceleration in consumption growth. This economic recovery is going to
continue to disappoint both this year and next."

The rise in
spending was heavily concentrated in nondurable goods, which includes
gasoline. Spending in this category jumped 0.9 percent while spending on
longer-lasting manufactured goods, such as autos, was essentially flat.
Spending on services rose 0.5 percent.

The savings rate remained
unchanged at 5.5 percent of after-tax incomes in March. Americans saved
just 2.1 percent in 2007 before the recession. The bursting of the
housing bubble has made them more cautious with their finances.

A
key inflation gauge that is closely watched by the Federal Reserve
showed prices rising 0.4 percent in March, the same as February.
Excluding food and energy, prices were up a more subdued 0.1 percent in
March and are 1.8 percent higher than a year ago, well within the Fed's
comfort zone.